When the price of coffee decreases 5%, quantity demanded increases 5%. The price elasticity of demand for coffee is ________ and total revenue from coffee sales will ________.
A) elastic; decrease
B) elastic; increase
C) inelastic; decrease
D) unit elastic; not change

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, both are 5%, making the elasticity 1, or unit elastic. When demand is unit elastic, a change in price does not affect total revenue, hence it will not change.

When the Price of Coffee Decreases 5%, Quantity Demanded Increases